Jodi Hilton © The New York Times Frank Roshinski, vice president for video merchandising at Tweeter, a Massachusetts-based consumer electronics chain, says he is eager to sell Toshiba's new high-definition video disc players even though its technology could end up the loser in the war over formats for the next generation of high-definition machines.

Blu-ray, HD DVD making pitch to lure early adopters

By Ken Belson, The New York Times
June 27, 2005

Many retailers would not want to load up their shelves with expensive electronics that could soon become obsolete or, worse, include technology rejected by most of the industry.

But not Frank Roshinski, the vice president for video merchandising at Tweeter, a high-end consumer electronics chain.

He cannot wait to get his hands on the newest high-definition DVD player that Toshiba plans to release this year - even though Toshiba's technology could end up the loser in the war over the format of the next generation of high-definition DVDs, players and recorders.

"Absolutely, we'll carry the machines without a clear-cut winner," Roshinski said. "Our customer is looking for high-definition content, and any way we can give it to them is good."

The machines he wants to sell in Tweeter's 177 stores will cost upward of $1,000 and initially be able to play only 89 movies from three studios. But even that will be enough to entice hard-core video fanatics to buy an HD player, he said.

Roshinski and his customers are willing to take the risk even though neither the electronics nor the movie industries have agreed on which format - the HD DVD standard championed by Toshiba or the Blu-ray format being pushed by Sony, Matsushita, Hewlett-Packard and others - will become the standard for the next decade and beyond.

Two camps target buyers

Talks between the groups stalled in May, and now the format battle is moving out of the boardroom as the rivals take their technologies directly to consumers.

Toshiba, which will sell only players, not recorders, will not be alone in the retail market. Sanyo, a Toshiba ally, plans to introduce a similar player this year. NEC, the third company in the Toshiba camp, will release an HD DVD computer drive in September.

On the other side of the fence, Sony and Matsushita - which already sell high-definition DVD recorders in Japan - may produce machines for the American market in 2006. Sony also plans to include Blu-ray technology in its PlayStation 3 game consoles to be released next year.

Pioneer expects to produce a computer drive capable of showing Blu-ray movies next year, while Hewlett-Packard expects to manufacture Blu-ray discs that can be used in computers in 2006.

Putting the machines on the market without an industry standard is a risky strategy. The first devices will be expensive, and it is likely they will not be able to play all movies because the major Hollywood studios have been choosing sides, at least in a preliminary way.

Only Paramount, Warner Home Video and Universal have agreed to produce discs for Toshiba's player. Sony, MGM and Disney are in the Blu-ray camp, and Fox is loosely aligned, too. (Most studios, however, have left open the option of producing discs for both formats.) Even if the two camps reach a compromise or if one eclipses the other in the marketplace, some consumers will still be stuck with machines that cannot play most of the next-generation DVDs. That is why this strategy could backfire on the electronics companies.

Consumers likely to wait

Most consumers, burned over the years when technologies like Betamax came and went, are likely to shy from buying new devices until a single standard emerges.

"Consumers are very sophisticated and know to wait out the format wars," said Michael Gartenberg, a research director at Jupiter Research. "There's going to be a lot of fear and uncertainty and doubt in the marketplace, and a lot of consumers saying, 'For $1,000 a machine, let's wait awhile.' "

With that kind of reluctance, mainstream retailers, although eager to sell more high-definition equipment, are wary of committing too many resources until a single format emerges.

"It is in the consumer's best interest for Blu-ray and HD DVD format proponents to avoid a counterproductive format war," said Mike Vitelli, senior vice president for merchandising at Best Buy. "Consumers should not be asked to assume the risk of picking a winner in a contest they did not start and over which they have little control."

Sides try to gain edge

Still, releasing a machine early has its advantages. Each camp is fighting to persuade Hollywood that its standard is the most technically attractive and financially feasible. By putting devices in stores, the companies can provide evidence that at least a sliver of "early adopters" agree.

"It's a might-makes-right ploy," said Ross Rubin, who tracks audio-visual products for NPD, a research group. "The more momentum one company can establish in the marketplace, the more bargaining power it has as the leading standard."

Some electronics companies and Hollywood studios also are betting that American consumers are ready to splurge on high-definition DVD players, given that more people now own high-definition televisions and that high-definition programming has become more prevalent.

Last year, 9.9 percent of American households owned a high-definition television, and the figure is expected to rise to 16.4 percent this year, according to Gartner Inc., a technology research and consulting company.

"Now Hollywood sees a turning point," said Yoshihide Fujii, chief executive of the Digital Media Network Co. unit of Toshiba. "They now wish to market high-definition movies because high-definition TV sales have improved."

High-definition discs, regardless of format, are expected to cost more than the current generation of DVD's. Warner Home Video, Universal and Paramount have not named a price for their discs.

Blu-ray bets on recorders

While the small number of titles - which includes films like the Harry Potter movies, Forrest Gump and The Manchurian Candidate - will not sell many machines, it will give Toshiba a head start. (Toshiba expects the studios to release more movies for its player next year.) The Blu-ray companies, by contrast, are betting that consumers will want machines that can record high-definition broadcasts. As with the current generation of machines, these recorders are likely to cost even more than play-only machines.

With so much uncertainty, some manufacturers are hedging their bets. Sanyo, which plans to release an HD DVD player, also will work with the Blu-ray group to develop components for high-definition recorders.

Like the Toshiba group, the Blu-ray companies also want to produce computer drives that can play and store high-definition content. If these sell well, the price of the components could fall, possibly pushing down prices for high-definition DVD players and recorders for the living room, according to Maureen Weber, general manager of the optical storage solutions business at Hewlett-Packard.

Given how long it took for CDs and DVDs to evolve into single formats, sales of the next-generation DVD players are likely to be slow until either the manufacturers can agree on a standard or the Hollywood studios throw their weight behind a single one. Until then, expect only the most avid fans to go shopping.

Because the DVD machines are not available, "the average American does not yet know there is a format war," said Mark Mackenzie, an industry analyst at Sanford C. Bernstein.

Even when the various competitors release their devices, he said, it is likely consumers will wait it out.

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